Buying ISK, any flaws in this plan?

pjbltd

I have an employee brokerage account where I can buy/sell currency, I am thinking of doing the following trade and was wondering what people thought or could see any risks I'm not seeing.

Sell £1000 to Icelandic Krona
(Do this now when GBP is strong against the Krona £1=245ISK)
Earn 11% on the Krona balance
(this is the interest rate offered for ISK in the account)
Convert ISK back to GBP in a year or so
(when GBP is not as strong against Krona, I'm imagining £1=150ISK)

My prediiction is over the next year the Icelandic economy will improve (or at least probability of it collapsing lower) this will strengthen the currency, while at the same time the UK economy will deteriotate meaning Sterling will weaken.

Birdie100

Dear pjbltd, I think investing in kroner may be a little foolhardy to say the least. The seemingly "ovious" tactic of borrowing here and investing in Icelandic kroner is foolish. The exchange rate of GBP/ISK has only got to fall by 6% and the gains are wiped out. Given the great financial dis-ease at the moment, i would advise against your plan! (And that's one of the reasons the Icelandic banks have gone bust - becuase foreign investors are no longer partaking in the carry trade, which is what you've effectively outlined)

pjbltd

But I don't need to borrow the money

bjorn_again

pjbltd wrote: »

But I don't need to borrow the money

Then take your own counsel. If the answer to your question was merely logic, everyone would be on to it. It's a gamble like most other things in life, if you have the money to lose and you are up for it do it. If you go ahead - good luck, I sincerely hope it works for you.

NumbersGuy_2

any flaws in this plan?

You mean other than it being highly risky?

You are speculating on FX. You could do the same via a spread bet.

It's your call, but to make an informed decision on this you should be fully up to speed with (among other things) the full details of Iceland's plan with the IMF, the actions it has to take and what actions it might take if various eventualities occur - then assess how this might affect your "investment". Can you say you know, at the very least, this?

halight

Hi mate,
If you are a risk taker then go for it!!!! Realy it is a rick but you could clean up!!!!!

But i warn you if you can not aford to lose this money then walk away and put your money somwere safe (ish)

What ever you do good luck

LongTermLurker

245???? Bloody hell - I wish I was going there sometime soon! As the others have said, it's high risk. The Krona has been falling significantly since the early 90s, when there were about 100 kronur to the pound. by mid 90s, it was about 116; late 90s/early 2000s it was about 135 and a couple of years back I think it was up to about 150, dropping back to about 135.

Obviously the rise from 135 to 190/245 is abnormal, and it could drop back to the 150 mark, but there's no saying when. The trouble is, if it takes several years to fall, then you could find that inflation eats into your currency gains. If you were planning to visit Iceland next summer, then I'd say now was a good time to buy some, but I'm not so convinced as to the investment benefits.

However, now would be a good time to go visit Iceland for the New Year - at about IKR500 - 600 for a beer, that's only gonna cost you about £2.25/pint. Bargain!

opinions4u

LongTermLurker wrote: »

However, now would be a good time to go visit Iceland for the New Year - at about IKR500 - 600 for a beer, that's only gonna cost you about £2.25/pint. Bargain!

I don't drink enough to make the 25p a pint saving (local pub price) needed to cover the cost of my flights/hotel.

LongTermLurker

By bargain, I meant to the "normal" Icelandic/outlandish price of about £4-5/pint!